Cost Control and Financial Management in Food and Beverage Industry

This report discusses cost control and financial management practices in the food and beverage industry. It includes an interview analysis with a manager, cost control of front and back house operations, and financial methods used. The report emphasizes the need for proper financial management in the F&B industry to ensure profitability.

FOOD AND BEVERAGE MANAGEMENT

TABLE OF CONTENTS
Introduction......................................................................................................................................3
Interview Analysis...........................................................................................................................3
Cost control of front house operations.........................................................................................4
Cost control of back house operations.........................................................................................4
Financial methods used................................................................................................................5
Appendices......................................................................................................................................6
References........................................................................................................................................8

Introduction
The food and beverage industry is more than just about serving food. It comprises of major
restaurants at all the tiers, caterers, carts, patisseries, home deliveries, food trucks, cafeterias, etc.
and these food and beverages are prepared for immediate consumption. Moreover, the emphasis
is laid on making the food in a presentable manner. The food and beverage industries have
become a one-stop shop for consumers (Renton, Daellenbach, and Davenport, 2016). This has
even led to bustling food chains all over the world. From small eateries to humongous cafeterias,
food and beverage outlets find their presence all over. The field of analysis will be to throw light
on cost control and financial management practices which are followed in the F&B
specializations. The present report presents assessment relating to the results obtained post the
interview with the manager. Furthermore, the purpose of the report will be to highlight the
procedures that are involved in the proper management of finance sector.
Interview Analysis
The F&B industry, accounts for a proper allocation of available resources and capital. There are
certain functioning authorities that are allocated to ensure the management on both financial and
non-financial front. In order to come up with fine analysis, we decided to interview the F&B
manager of an outlet. The prime motive of the interview was to investigate the various methods
of cost management in the F&B industry. The details of the manager are kept incognito in order
to protect the confidentiality standards. The enterprise managed by the interviewee was the back
of house operations. However, it was feasible to trace the information for the front of house
operations as well. While answering the questions, the manager segmented the F&B outlets in
departments of:
 Liquor
 Food
 Dessert
 Minerals
 Patisserie

He further mentioned that these are few of the departments that constitute the F&B industry.
There are several cost centers in this field that generate multiple revenue accordingly. As per the
interviewee, the industry tends to face several challenges on a regular basis. In the interview, it
was highlighted that the food and beverage is not only pertaining to the restaurants in the
hospitality field. Moreover, it relates to banquet and halls for parties as well. Therefore, multiple
channels for revenue are recorded under this. Within banquets, there are groups who travel. It is
an ardent need to take up a cost management system to have a much organized and structural
functioning of the F&B outlets. It was investigated that the food and beverage is one major
performing tier of the hospitality sector (Rushmore and O’Neill, 2015). However, not much
emphasis is laid on the cost that is incurred in the management of this section. Therefore, the
interviewee mentioned that they keep on undertaking measures to keep a track of the financial
management of the F&B.
Cost control of front house operations
As per the assertions of Wood (2018), the front house operations include the functioning
proportions of the restaurant. The cost incurred under this head is regarding the look and feel of
the F&B outlets. It is kept under consideration, the amount which is accounted for this
management (Trung, Linh and Thi, 2015). However, the interviewee mentioned that the front
office often stays in the limelight. This is why; most of the money is spent on it. It was further
noted that majority part of the budget in F&B is allocated for the look and feel for the front
house operations. It also includes the presentation of the food. This further accounts for capital to
be invested in attractive dishes and related equipment. The main motive of the interviewee
remains to cut the unnecessary cost and keep everything minimal. They also adopt various
measures which will be discussed in the report further.
Cost control of back house operations
The interviewee mentioned that back house operations remain behind the curtains. It is the basic
foundation of the F&B sector. The kitchen arena and the staff to keep that going constitutes the
back house operation. As per assessment of Noone, Enz and Glassmire, (2017) a good amount of
capital is invested in staying updated with all the cookery items, culinary sets and best quality of
food. The hospitality industry keeps a record of the items to be invested on to cut the extra

capital investment (Kristina and Wijaya, 2017,). Therefore, measures are adopted to make sure
they carry on an organized financial management.
Financial methods used
As per the feedback is given by the interviewee, application of best possible accounting and
financial methods is the need of the hour. This is why they keep coming up with new
methodologies.
Differentiating fixed and variable costs
It is obvious in the F&B industry, to find different types of costs. It is important to determine the
accurate costs. As per the assessment of Dopson and Hayes, (2015), the fixed cost allows a
constant idea of what exactly will be the capital amount to be invested. On the contrary, the
variable cost keeps on fluctuating. This tends to give an inconsistent budget. Therefore, as per
the interviewee, they keep a correct identification of the cost type.
No extension above overall revenue
The rent amount, price of goods and manpower, these 3 draw the foundation of an F&B industry.
It is always kept in consideration that the cost of these 3 should never exceed the 70% of the total
revenue. Any extension above this leads to fluctuation of budget and incurs a loss to the
hospitality sector (Davis and et al. 2018).
Less than 20% rent
Interviewee made us note that they always make sure that the amount they are paying rent for
various services in the F&B sector shall be less than 20%. This helps them in maintaining the
budgetary policies (Bowie and et.al.2016).
The prime cost to be below 60%
There are various channels from where the F&B outlets function. It could be in the restaurant,
banquet chain or delivery options. The interviewee believes that the prime cost is made up by the
cost of goods sold and manpower. Oluwoye, Chembezi and Herbert, (2017) asserted that this is
one of the measures they apply to keep a check on the managerial creativity of the restaurant.
The prime cost must be below 60% to allow a smooth flow of financial needs.

Majority of the hotels in the hospitality industry tend to get wrong or incorrect statements. This
is mandatory for the entire field of hospitality to come up with managerial steps to encounter
certain problems that lead to further inefficacy (Patiar, 2016.).

Appendices
Q: Welcome, we’ll be conducting a small interview to assess the financial problems and cost
management techniques in F&B sector in the hospitality field. So, which enterprise do you
specialize in?
A: Well, I manage the back of operations in the restaurant.
Q: Enlighten us about the problems faced while managing cost?
A: Technically, the hotel’s F&B is not only about food, it about liquor, dessert, minerals, and
few other things. We face problems when we consider F&B as a single unit where it is
segmented to many. We face problems in allocating money in these different sectors so as to
incur more profit.
Q: How do you manage these problems?
A: It is not an easy job. We try to assess all the aspects of the industry. Since F&B is divided into
both front and back operations. We examine the cost percentage we have to allow to each.
Therefore, we identify fixed and variable cost. We check if the total is exceeding the overall
revenue. Our focus lies on cutting the extra cost. We try to alter the rent value and the prime cost.
We keep in mind all the important attributes while drafting budgetary policies.
Q: How far do you think they help?
A: In my opinion, these have helped us so far. We have been able to manage the cost and
expenditure both. We are still coming with new measures.
Q: That is great. It was lovely having you here! I am sure; your measures would surely help the
F&B sector to flourish.
A: Thank you, it was my pleasure.

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